Pension lessons for Canada from Down Under

The recent strikes at Air Canada and Canada Post were, at root, about pensions. And Nortel pensioners learned in July that “interim” cutbacks in their benefits will begin in August, although the defunct company’s recent patent auction may ease the pinch.

Already, employer-sponsored defined-benefit pension plans cover fewer and fewer Canadian workers. And, judged by the past few years, employer attempts to reduce or eliminate defined-benefit pension plans are going to grow, and with them industrial conflict.

And for the majority of Canadian workers who do not have pension schemes like these, the combination of CPP, OAS, RRSP and savings will generally not be adequate to provide for a “good enough” retirement after 45 years of working life.

Is there a better way?

Australia, so often compared to Canada, seems to have created one. The Australian “superannuation” system offers a way to move the financial burden of retirement away from the hurly-burly of workplace negotiation and to largely remove the threat of retirement poverty.

Faced with the same issues we are now facing, in the early 1990s the Australians drastically overhauled their pension system. As well as voluntary savings and a means-tested government pension similar to the Canadian OAS, Australia has an earnings-based pension system called “superannuation” that covers virtually all full- and part-time workers.

The contributions are mandated by law and are paid solely by the employer. Individual superannuation is managed by a fund of the worker’s choice according to a risk profile defined by the employee. Nothing is lost when employees change jobs as the new employer continues to contribute into the same fund. Employees are free to top up these contributions but are under no obligations to do so. The employer’s financial obligation is limited to these contributions and ends when the worker retires.

This Australian national pension fund system is largely led by “industry funds,” industry-specific funds originally set up by the union movement and whose trustees consist of 50 per cent union-nominated and 50 per cent employer-nominated members.

These not-for-profit low-fee “industry funds,” responsible only to their members, manage the pension funds of almost half of Australian workers. In 2010 these union-originated industry funds included nine out of the 10 best-performing funds. All pension funds, whether industry funds or retail funds, are intensely regulated.

This system has now been in place for more than 20 years, under governments of both main parties. It is now part of the social and political landscape in Australia and is unchallenged. The only argument is over whether the percentage contributed by employers should be increased

The current government is proposing to raise the contribution level from 9 per cent to 12 per cent of employees’ earnings. Australian workers have more than $1.3 trillion in superannuation assets and Australians now have more money invested in managed funds per capita than any other country.

Canada can’t afford retirement poverty. For the millions of vulnerable Canadian workers lacking employer-sponsored defined-benefit pension funds, a Canadian national pension system that borrows and adapts elements of the Australian system would be an enormous step towards providing adequately for their retirement and would provide certainty for their employers without future liabilities.